The supply agreement until December 2019 (and the in principle...

The supply agreement until December 2019 (and the in principle agreement to 2022 suggested in more recent announcement/annual report) is to do with the volumes/take or pay for manufacturing supply. These agreements keep us willing to keep the factory running as it is Merck's way of committing to volume, otherwise the board has previously threatened to close the Alusion facility when volumes were not growing. Thankfully, for both parties things are on the up and up!





Merck do not have to use us to manufacture the product under the exclusivity agreement, however we're the only ones who know how to, and even if we didn't manufacture it, Merck would owe us a royalty payment per kilo if someone else (or themselves) did. I think we're doing pretty well now at making it so I don't see why this would change anytime soon.

The exclusivity license agreement (separate to the supply agreement) itself ends around about 2023. Merck will want to be having discussions with ANO over the next couple of years regarding reconfirming exclusivity (IMO before 2022's supply agreement is up) - they will need to pay up for this. The board has previously talked about how it is easy to value what it is worth to Merck, as we know how much they are selling (we're their exclusive source of product, know what they pay us and what they sell it for - therefore their gross profit on it).

My take on the whole thing is, Merck will likely renew for cosmetics exclusivity at a nice lump sum (some multiple of earnings - best guess would be around $40 to 50m AUD the time it's up for renewal) and ANO will claw back license agreement for other industrial purposes, particularly to do with their 3D printing technology.

The alternative is there is a very viable option to take away exclusivity from Merck and sell the product through our existing global cosmetics distributors (who currently sell ZinClear) in addition to Merck - which may make more money than solely through Merck but I think this is becoming less likely as Merck keep committing to the product and selling a fair amount of it. They will not want to part ways with a product they have been promoting for a period of time and are now focusing on (as per their latest company strategy docs).

Either way, the cards are held by ANO.